A recent report released by the biggest digital asset manager worldwide, Grayscale, claims that rising interest in Central Bank Digital Currencies (CBDCs) underscores Bitcoin’s value proposition.
Grayscale argued that the limitations of CBDCs would favor Bitcoin and bring about more adoption. The report noted that weakened public trust in governments may prove to be a tailwind for Bitcoin.
Grayscale painted a bullish picture for Bitcoin in the report in the midst of increasing interest in CBDCs and as China is on its way to introducing its digital Yuan in 2020. The report compared Bitcoin with CBDCs by highlighting the demerits of CBDCs if they become successful or not.
According to the report, CBDCs’ success will lead to the adoption of digital currency infrastructure which includes merchant payment solutions, digital asset custody, exchange services, and wallets. However, if CBDCs succeed, governments will keep an eye on and control money issuance and transfer. That is, the digitization of currencies will empower central banks to govern monetary policy, while the monetary policy of Bitcoin does not change.
“In fact, with logic encoded into a CBDC, it would be easier for a central bank to issue new currency and even set effective rates on assets held in personal custody.”
When it comes to the issue of privacy, CBDCs will help central banks vet all transactions and freeze funds whenever they deem fit, said the report.
Nevertheless, it is not clear whether the few central banks looking into CBDCs at the moment will introduce them. Among the concerns of policy makers is the possibility of CBDCs endangering commercial banks as there could be transactions and storage of the currency outside the banking system, thereby adjusting deposit to lending ratios, reducing continuous funding for the banks and affecting profits.
Some participants in the cryptocurrency and blockchain technology space believe that the launching of digital Yuan will motivate other governments to do the same.